Organization profit sensitivity analysis

Abstract

Sensitivity analysis has a wide application in modern conditions. This article reveals the possible variants of its practical use. One of the directions of sensitivity analysis is associated with assessing the impact of factors on the organization profit margin. This particular approach allows businesses not only to identify potential risks but also serves as a basis for making management decisions aimed at optimizing costs and increasing profitability. The object of research in the article is a hypothetical business model of an educational center. The subject of the research is the behavior of key performance indicators and assessing their impact on the organization’s profit margin through sensitivity analysis. The authors propose a grouping of the educational center’s costs depending on the level of cost occurrence. A model of the relationship between the main key factors is graphically presented. Also, the authors propose three variants of profit sensitivity analysis: in the a two–factor matrix of values, using flexible budgets, and based on the assessment of the factors impact on the profit amount and other dependent indicators. It was indicated the advantages and disadvantages for each sensitivity analysis variant, which facilitates the choice of methods for their practical application.

Keywords

• sensitivity analysis
• factor analysis
• cost behavior model
• fixed costs
• variable costs